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Income Tax Audit

The income tax audit is an examination of accounts of any business or profession carried out by taxpayers to verify that all the income, expenditure and deduction information are filed correctly.

The provisions for Income Tax audit are covered under section 44AB of the Income Tax Act of 1961.

The tax audit report is required to be submitted by the Chartered Accountant performing the tax audit along with his/her findings and observations. The audit report consists of forms 3CA/3CB and 3CD.

Objective of tax audit

The objectives of the Tax Audit are as follows:

  • Tax audit ensures that all the businesses maintain proper books of accounts and record all other revenue and expenses properly.
  • It helps in the computation of income computation for filing of return.
  • It also ensures that the total income and the claims for deduction are correctly and accurately for the computation of income and filing of return.
  • Checks frauds and malpractices in filing income tax returns.

Who required to get book audited under Income Tax?

Tax Audit applies to certain classes of individuals which are mentioned under Section 44AB of the IT Act. These are covered under presumptive taxation schemes, wherein a pre-determined percentage of income is assumed to be the gain or profit meant for taxation.

As per the provisions of Section 44AB of the Income Tax Act, 1961, following taxpayers are compulsorily required to get their accounts audited by as per Income tax Law:

Carrying on business

An individual who is engaged in business and the total sales, turnover or gross receipts exceed Rs 1 crore in the financial year.

Carrying on profession

An individual, who is engaged in profession and his Total gross receipts exceed Rs 50 lakh in the financial year.

Carrying on business eligible for presumptive taxation

An individual who qualifies for the presumptive taxation scheme under Section 44AD and declares taxable income below the limits prescribed under the presumptive tax scheme and has income exceeding the basic threshold limit.

Carrying on the business and is not eligible to claim presumptive taxation

If the assessee who is qualified under the presumptive taxation scheme but opts out of it after a specified period, he would not be allowed to take the presumptive taxation scheme again for a continuous term of 5 assessment years once the decision to opt – out is taken.

Carrying on the profession eligible for presumptive taxation

If the assessee is qualified under the presumptive taxation for carrying on profession and claims profits or gains lower than the prescribed limit under the presumptive taxation scheme and Income exceeds the maximum amount not chargeable to income tax.

Businesses specializing in leasing, hiring and plying of goods carriages

An individual who qualifies to choose the presumptive taxation scheme of selection under Section 44AE but then claims that the profits for such business are lower than the profits calculated as per the presumptive taxation scheme of section 44AE.

International company involved in the business of civil construction etc. in certain power projects

An individual who qualifies to choose the presumptive taxation scheme of selection under Section 44BBB but then claims that the profits for such business are lower than the profits calculated in accordance with the presumptive taxation scheme of section 44BBB.

Non-Resident Indians (NRIs) involved in business specializing in the mineral oils industry, like exploration

An individual who qualifies to choose the presumptive taxation scheme of selection under Section 44BBB but then claims that the profits for such business are lower than the profits calculated as per the presumptive taxation scheme of section 44BB.

Forms required for Audit report

The tax audit reports prepared by a registered chartered accountant are to be presented in a prescribed format. However, Tax Audit reports are to be presented based on the laws under which the accounts have been audited. Such as,

Form 3CB and Form 3CD

For tax audit reports presented under Section 44AB of the Income Tax Act, 1961, Form 3CB and the prescribed details have to be reported in the Form 3CD.

Form 3CA and Form 3CD

When a taxpayer prefers to get the accounts audited under any law other than Section 44AB, then the relevant form is Form 3CA, while the prescribed details have to be reported in the Form 3CD.

Due date of Tax Audit

Any person covered under the section 44AB should get their accounts audited and should also obtain the audit reports on or before 30th September of that particular year, i.e. the due date of filing the return of the income.

Penalty for non compliance

As per section 271B, if any taxpayer who is required to comply with the section 44AB fails to get their accounts audited, He shall be liable to:

  • 0.5% of the total sales, turnover or gross receipts in case of a business organisation or 0.5% of the total receipts in case of profession of the current financial year.
  • Fined of Rs.1,50,000.

However, according to section 273B, no penalty would be imposed on the person if the valid and genuine reason for such failure is proved. There are few permitted reasons for non compliance:

  • Delay due to resignation of the tax auditor
  • Delay due to death or physical inability of the partner responsible for accounts
  • Delay due to labour issues such as strikes or lock-outs
  • Delay due to loss of accounts due to theft or fire, or incidents that are not under the assessee’s control
  • Natural calamities

How to get books of account audited

To get more information about income tax audit and income tax return filing, write a email to info@eadvisors.in or send a text message or whatsapp to +91 9910000833.

6 Comments

  • Income Tax Audit Posted March 29, 2020 8:53 pm Reply

    Happy to read this very useful information. Nice and detailed explanation.
    Appreciate your sharing and tweeted

  • PAYOD ADHESIVES Posted April 30, 2020 5:39 am Reply

    Well written and very informative. It has explaned income tax law in a very simple language for general public to understand very easily.

  • PRECISE PACKAGING Posted April 30, 2020 5:40 am Reply

    Explained the audit in simplicity.

  • PRINCE PACKERS Posted April 30, 2020 5:42 am Reply

    Very nice compilation. The author is a distinguished speaker and has lucidly explained the law provisions with ease. Kudos …

  • RISHI ALUMINIUM INDUSTRIES Posted April 30, 2020 5:43 am Reply

    No words for author just clap clap clap clap.

  • SALASAR PACKAGING Posted April 30, 2020 5:45 am Reply

    Great,awesome, fabulous work.

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